Moody’s raises Apicorp outlook and affirms ratings

Moody’s Investors Service revised upwards its outlook for Arab Petroleum Investments Corporation (Apicorp), the lender owned by the Organisation of Arab Petroleum Exporting Countries, and affirmed its long-term issuer ratings.

The rating agency maintained Apicorp’s long-term and senior unsecured rating at Aa3, and revised its rating outlook to positive from stable.

“The key driver of the outlook change reflects progress that Apicorp continues to make in reducing balance sheet maturity mismatches and its reliance on wholesale deposits in its funding mix by diversifying and lengthening its funding profile,” the report said.

Apicorp has continued to actively diversify and lengthen the maturity profile of its funding sources. More than two thirds of its wholesale deposits have been stable in recent years, indicating strengthened overall liquidity.

The multi-lateral development bank last month raised $750 million (Dh2.75 billion) through a bond issuance as it shored up finances to fund further development of the energy sector across the region.

The five-year bond, rated Aa3 by Moody’s, the fourth-highest investment grade, was sold by Apicorp’s newly established $3bn global medium term note. The deal was oversubscribed with the order book growing in excess of $3.5bn.

Apicorp’s Aa3 rating is supported by “very high capital adequacy, improving asset quality, and very high strength of member support”, the report said.

Despite lower oil prices since 2014, the corporation has managed to maintain healthy profitability. Its return on assets and net interest margin has been averaging 1.7 per cent and 1.1 per cent over the three years to 2017. This has allowed it to accumulate capital through retained earnings, and pay dividends in 2015 and 2017.

However, while the liquidity position is “robust and improving”, Apicorp is constrained by the less liquid nature of some of its treasury investment assets and their exposure to borrower risk, according to the report.

Meanwhile, the bank’s high concentration of assets in the oil and gas sector presents challenges should oil prices decline, or any of its borrowers and shareholders face economic, geopolitical and security challenges in the future.